Is Washington making unemployment worse?

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Labor market distortions have gotten progressively worse during this recession. The federal minimum wage, for example, was increased once shortly before the recession began, a second time in the summer of 2008, and yet again this summer. The housing collapse has also had multiple harmful effects, such as impeding families who might want to move out of some of the hardest-hit regions toward areas where the economy is doing better.

These types of factors can make a bad labor market much worse. Some of the labor market distortions will stop getting worse over the next couple of months, as housing prices stabilize and the federal minimum wage stays put, but that does not mean that labor market problems will reverse themselves.

According to my measures, labor market distortions have been getting worse at the same rate over the past couple of months as they have throughout the overall recession. Moreover, Congress appears poised to further erode incentives to earn income as an accidental byproduct of its plans reforming health care. Nor do consumers seem to be spending in anticipation of a grand employment recovery.

Thus, my humble prediction for the next several months is that real incomes and spending will continue to grow, although likely at an annual pace less than the 3.5 percent estimated a couple of weeks ago. In other words, as many have feared, this part of the recovery will be “jobless,” in the sense that employment and hours will not rise significantly, and may continue to fall.

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James Pethokoukis is the Money & Politics columnist for Reuters Breakingviews. Previously, he was the business editor and economics columnist for U.S. News & World Report. Pethokoukis has written for many publications including The New York Times, The Weekly Standard, Commentary, USA Today, and Investor's Business Daily. Pethokoukis is also an official CNBC contributor. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, The McLaughlin Group, CNN, and Nightly Business Report on PBS. A graduate of Northwestern University and the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion. james.pethokoukis@thomsonreuters.com